What lies ahead for oil? Will post war glut keep the prices down in 2026?

Brent crude oil prices are now trading near the $78 per barrel level, effectively erasing all the risk premiums gained during the war period from 02 March 2026. With the US and Iran agreeing and signing on an interim peace deal, the oil prices have now evaporated all the steam and are inching back towards $70 per barrel levels. The sharp drop in oil prices has improved the sentiment for major oil-importing nations, as it alleviated the tensions higher oil prices for a longer period. With the interim peace deal valid for 60-days, will the crude oil prices inch back upwards, or will they continue to fall? Here’s what lies ahead.

Demand destruction

Crude oil prices nearly doubled in 2026 after the war broke out in early March. The prices remained elevated throughout Q1 of FY27, resulting in higher inflation levels across economies. Additionally, industrial demand for petrochemicals and jet fuels also remains subdued owing to the elevated prices and supply shocks caused by the Middle East crisis. After the opening of the Strait of Hormuz, the market is flooded with oversupply, but the demand catches up with a lag. Industry reports suggest that the shipping traffic in the Strait of Hormuz could rise to 12.1 million bpd in June, as compared to 9.6 million bpd in May. The oversupply will remain as a major drag on the oil prices until it falls below the renewed demand.

Additionally, the IEA ( International Energy Agency) significantly downgraded the 2026 demand growth outlook to 7,00,000 barrels per day as compared to its previous month’s outlook.

Fading risk premium

The Brent crude oil futures made a fresh high of $120 per barrel during the peak of the war in April. However, the OPEC crude oil basket or the Oman crude basket rose over $140 per barrel during the same period, carrying a nearly $40 premium to the spot crude oil prices. However, with geopolitical risks abating, the premium is fading faster than anticipated. The OPEC basket crude oil price currently stands at $80 per barrel as of 17 June 2026, close to the Brent crude oil price of $78 per barrel. The erosion in risk premium suggests that oil traders expect the physical market to be equipped with excess supply, adding pressure to the crude oil prices

Oversupply concerns

In its latest energy outlook, the IEA (International Energy Agency) projected that the total oil supplies will increase by 8 million barrels per day to 110 million barrels per day. This comes in sharp contrast to its May outlook, where it projected the overall oil market to remain in deficit throughout the year. The transition from a deficit market scenario to an increasing supply outlook signals more supply pressures on crude oil prices than supply shocks.

What do experts say?

Fitch Ratings anticipates the global oil market to return to oversupply in about a month if the Strait is fully operational. They also expect the oil prices to average around $87 per barrel for the entire 2026 and $70 for Q42026. The ratings agency expects a rapid recovery in the Middle East production, supported by strong non-OPEC supply and a potential increase in OPEC output could put downward pressure on oil prices, despite a residual risk premium.

The bottom line

Together, the supply glut, fading risk premium in the international spot prices and demand destruction could act as a key overhang on oil prices. However, institutions, global investors and commodity traders will closely monitor the 60 days of the interim deal between the US and Iran. Any adverse development or fallout from the deal by either nation could revive the upward momentum in crude oil prices.